Enter the sponsor’s overhead rate and the direct costs into the calculator to determine the indirect costs.

Indirect Costs Formula

The following formula is used to calculate the indirect costs of a budget preparation

IC = SOR/100 * DC

  • Where IC is the indirect costs ($)
  • SOR is the sponsors’ overhead rate (%)
  • DC is the direct cost base ($)

Indirect Costs Definition

Indirect costs are defined as project-related costs that cannot easily be identified for a particular project. In other words, these are the overhead costs of a project.

How to calculate indirect costs?

Example Problem #1:

First, determine the sponsor’s overhead rate. In this example, the sponsor is charging an overhead rate of 50%.

Next, determine the direct cost base. The direct cost base of this planned project is budgeted to be $100,000.00.

Finally, calculate the indirect costs using the formula above:

IC = SOR/100 * DC

= 50/100 * $100,000.00

= $50,000.00.

Example Problem #2:

In this next example, the sponsor’s overhead rate is much higher, at 87% of direct costs.

The direct costs of this project are also higher at $200,000.00.

Using the formula as we did above, the indirect costs are calculated as :

IC = SOR/100 * DC

= 87/100*200,000

= $174,000.00.